Russia has approved a $14 billion rescue package for Bank of Moscow, the largest bail-out money paid to a bank in the country’s history.
The money was sanctioned after VTB – a majority state owned bank said it uncovered bad loans worth 250 billion roubles ($9 billion) after it acquired 46.5 percent in Bank of Moscow. The bad loans represent nearly one-third of the bank’s total assets and allegedly were extended to companies linked to the previous management.
The previous management led by Andrei Borodin, an ally of ousted Moscow mayor Yury Luzhkov, has been accused of mismanagement by Russian finance minister Alexei Kudrin, who called for criminal investigations on Friday for siphoning of assets in Russia and abroad by the Borodin-led management.
A review by Russia’s central bank revealed that out of the total 250 billion roubles of loans made to companies linked to Borodin, 150 billion worth loans were ‘very bad’, and were rolled over repeatedly without being serviced and without any collateral security.
However, Borodin termed the takeover by VTB bank as political from London and said he was shocked by the size of the bail-out package. Borodin fled the country after Russia launched a criminal probe into a $415 million loan made to a real-estate project linked to Luzkov’s wife by Bank of Moscow.
However, Borodin’s spokesman couldn’t immediately confirm if the related party loans were collateralised or the collaterals have been recently removed.
VTB launched a take-over battle for Bank of Moscow since it acquired a stake in the lender for $3.5 billion in February from the city government. Borodin, who along with his business partner Lev Allaluyev held 20.3 percent stake were forced to exit the investment by Kremlin connected powerful businessman Vitaly Yusufov. Borodin had dared VTB to sell its stake amid tense-discussions over “problem loans”.
“This was not even a second tier bank. It was a quasi-sovereign institution at the heart of the state”, said Tim Ash, emerging markets economist at RBS, questioning the central bank’s supervisory capabilities.
“If this kind of thing happens at such an important institution, it’s an amber light that the entire Russian banking system has to be finally cleaned up”, he warned.